OPEC+ confirms plan to gently hike supply as demand recovers

By By Grant Smith, Javier Blas and Salma El Wardany on 4/27/2021

(Bloomberg) — OPEC and its allies recommended proceeding with plans to gently revive oil production as global demand recovers from the pandemic, despite surging infections in India.

A committee led by Saudi Arabia and Russia agreed the coalition can skip a full-scale ministerial meeting originally scheduled for Wednesday, and press on with its roadmap for increasing supply, delegates said. The 23-nation alliance intends to restart about 2 million barrels of daily output over the next three months.

World oil consumption will rebound by a vigorous 6 million barrels a day this year, though the recovery remains at risk from virus outbreaks in India and Brazil, a panel of OPEC+ technical experts forecast on Monday. As a result, the glut of oil inventories that amassed when demand collapsed last year will be almost gone by the end of this quarter.

“We can take comfort in knowing that our leadership has helped turn the tide,” Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, said on Twitter. “But at the same time, the persistence of Covid-19 reminds us that this is no time to stray from the cautious and steadfast approach we have taken over the past year.”

The OPEC+ alliance slashed output to help revive the global oil industry from an unprecedented price rout last year when the pandemic crushed fuel demand. The producers are now carefully restarting those supplies as economic activity resumes, beginning with an increase of about 600,000 barrels a day in May. The group is currently idling about 8 million barrels a day, or roughly 8% of world supplies.

The proposal from the Joint Ministerial Monitoring Committee, which formally met on Tuesday, was going through the OPEC+ diplomatic process so it could be rubber stamped by every member nation, a process that was likely to take a few hours.

Market Optimism

Russian Deputy Prime Minister Alexander Novak said Tuesday that there’s optimism in the oil market. Nevertheless, OPEC+ must keep monitoring the coronavirus situation across many regions, including Asia, he said on the state-run Rossiya 24 television network. Crude rose 0.5% to near $66 a barrel in London.

Global oil inventories will decline at a rate of 1.2 million barrels a day on average this year, technical experts at OPEC+ estimate. It’s a faster pace than the drawdown of 800,000 a day they projected a month ago. As a result, the stockpile surplus in developed nations will be whittled down to 8 million barrels by the end of the quarter.

“You’re seeing incredibly strong demand,” BP Plc Chief Executive Officer Bernard Looney said in a Bloomberg TV interview on Tuesday. China’s oil demand is above pre-pandemic levels, the U.S. is almost back there and “vaccines are going to kick in now in Europe.”

Virus infections in India, the world’s third-biggest oil importer, are increasing at a record pace. The outbreak could crimp the country’s fuel demand this month by as much as 350,000 barrels a day, according to consultant OilX. But for the time being, the recovery in China and the U.S. is eclipsing lower demand in India, said one senior OPEC+ delegate who asked not to be identified.

The coalition can move quickly if the situation deteriorates since it now meets regularly roughly every month, the delegate said. The next gathering is scheduled for June 1, delegates said.

“The dark cloud is India,” said Helima Croft, chief commodities strategist at RBC Capital Markets LLC. But “even if Indian demand were to deteriorate further, they have a mechanism to act pretty quickly.”

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